Product Disclosure Statement RESPONSIBLE ENTITY

Transcription

1 ARSN Product Disclosure Statement PRODUCT DISCLOSURE STATEMENT FOR THE OFFER OF PARTLY PAID ORDINARY UNITS IN THE CORDISH DIXON PRIVATE EQUITY FUND IV (ARSN ) TO ISSUE UP TO $100 MILLION PARTLY PAID UNITS, WITH THE ABILITY TO ISSUE UP TO A MAXIMUM OF $100 MILLION PARTLY PAID UNITS THROUGH OVERSUBSCRIPTIONS. THIS OFFER IS NOT UNDERWRITTEN. RESPONSIBLE ENTITY Walsh & Company Investments Limited (ACN ) (AFSL )

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3 Contents IMPORTANT INFORMATION 5 LETTER OF INTRODUCTION 9 INVESTMENT OVERVIEW AND KEY DATES 11 ABOUT THE FUND KEY BENEFITS AND RISKS OVERVIEW OF THE CORDISH COMPANIES AND CORDISH PRIVATE VENTURES SECTOR OVERVIEW FUND STRUCTURE & INVESTMENT PROCESS THE OFFER RISKS FEES AND COSTS FINANCIAL INFORMATION INVESTIGATING ACCOUNTANTS REPORT TAX INFORMATION KEY PEOPLE MATERIAL CONTRACTS ADDITIONAL INFORMATION GLOSSARY DIRECTORY HOW TO INVEST 97

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5 Important information This product disclosure statement (PDS) is an invitation to acquire partly paid units (each a Unit) in the Cordish Dixon Private Equity Fund IV (ARSN ) (Fund). This PDS was prepared and issued by Walsh & Company Investments Limited (ACN AFSL No ) (referred to in this PDS as Walsh & Company, we, our and us ). Walsh & Company is the responsible entity (Responsible Entity) of the Fund. This document is important and requires your immediate attention. This PDS contains general financial and other information. It has not been prepared having regard to your investment objectives, financial situation or specific needs. It is important that you carefully read this PDS in its entirety before deciding to invest in the Fund and, in particular, in considering this PDS, that you consider the risk factors that could affect the financial performance of the Fund and your investment in the Fund. You should carefully consider these factors in light of your personal circumstances (including financial and taxation issues) and seek professional advice from your accountant, stockbroker, lawyer or other professional advisor before deciding whether to invest. No person is authorised to give any information or make any representation in connection with the Offer which is not contained in this PDS. Any information or representation not so contained or taken to be contained may not be relied on as having been authorised by us in connection with the Offer. Information relating to the Fund may change from time to time. Where changes are not materially adverse, information may be updated and made available to you on the Fund s website at com.au. A paper copy of any updated information is available free on request from Walsh & Company. Date of PDS This PDS is dated 13 March Unless otherwise stated, information in this PDS is current as at the date of this PDS. Currency and rounding Unless otherwise indicated, references to $ are references to the lawful currency of Australia. Any discrepancies between totals and the sum of all the individual components in the tables contained in this PDS are due to rounding. No guarantee Neither we nor our respective subsidiaries nor any other party makes any representation or gives any guarantee or assurance as to the performance or success of the Fund, the rate of income or capital return from the Fund, the repayment of the investment in the Fund or that there will be no capital loss or particular taxation consequence of investing in the Fund. An investment in the Fund is subject to various risks. These risks are discussed in Section 6. Restrictions on the distribution of this PDS This PDS does not constitute an offer of Units in any place in which, or to any person to whom, it would not be lawful to do so. The distribution of this PDS in jurisdictions outside Australia may be restricted by law and any person into whose possession this PDS comes (including nominees, trustees or custodians) should seek advice on and observe those restrictions. The Offer to which this PDS relates is available to persons receiving this PDS (electronically or otherwise) in Australia. It is not available to persons receiving it in any other jurisdiction. This document is not an offer or an invitation to acquire securities in any country other than Australia. In particular, this document does not constitute an offer to sell, or the solicitation of an offer to buy, any securities in the United States of America (US) or to, or for the account or benefit of, any US person, as defined in Regulation S under the US Securities Act of 1933 (Securities Act) (US Person). This document may not be released or distributed in the US or to any US Person. Any securities described in this PDS have not been, and will not be registered under the Securities Act or the securities laws of any state or other jurisdiction of the US, and may not be offered or sold in the US, or to, or for the account or benefit of, any US Person, except in a transaction exempt from, or not subject to, the registration requirements under the Securities Act. Electronic PDS An electronic version of this PDS (including the Application Form) is available from the Fund s website at CORDISH DIXON PRIVATE EQUITY FUND IV PRODUCT DISCLOSURE STATEMENT 5

6 Copy of this PDS The Responsible Entity will provide you with a copy of this PDS free of charge if you request one during the Offer period, within five days after receiving such a request. Forward looking statements This PDS may contain forward looking statements which are subject to known and unknown risks, uncertainties and other important factors that could cause the actual results, events, performance or achievements of the Fund to be materially different from those expressed or implied in such statements. Past performance is not a reliable indicator of future performance. Enquiries Applicants with enquiries concerning the Application Form or relating to this PDS and the Offer should contact the Responsible Entity on , or via at info@cordishdixonfunds.com.au. Other than as permitted by law, applications for Units in the Fund will only be accepted following receipt of a properly completed Application Form. Glossary of terms Defined terms and abbreviations included in the text of this PDS are set out in the Glossary in Section 14. Photographs and diagrams Photographs, diagrams and artists renderings contained in this PDS that do not have accompanying descriptions are intended for illustrative purposes only. They should not be interpreted as an endorsement of this PDS or its contents by any person shown in these images nor an indication of the investments that may be made by the Fund. 6 CORDISH DIXON PRIVATE EQUITY FUND IV PRODUCT DISCLOSURE STATEMENT

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9 Letter of introduction Dear Investor We are pleased to offer you the opportunity to invest in Cordish Dixon Private Equity Fund IV (Fund). The Fund is the fourth fund in the Cordish Dixon Private Equity series, comprising Cordish Dixon Private Equity Fund I (Fund I), Cordish Dixon Private Equity Fund II (Fund II), Cordish Dixon Private Equity Fund III (Fund III), and the Fund (together, the Series). For this Fund, the unit pricing structure has evolved so that the per Unit Application Price of $1.60 will be paid in instalments, with the first instalment of $0.32 payable on application. This structure better reflects the way in which capital is invested by private equity entities, that is, following a process whereby an opportunity is identified, due diligence is conducted, and the investment decision made. Accordingly, the Responsible Entity will make further calls on these partly paid Units over an expected period of three to five years, as and when it is in a position to invest the capital. The Responsible Entity anticipates that each subsequent instalment will be approximately $0.32 per unit (equivalent to 20% of the Application Price), and that some cash may be held by the Fund in advance of making the private equity investments. While the Fund will not be listed on ASX initially, after the Units are fully paid, the Responsible Entity may seek to publicly list the Fund in order to provide liquidity. The Series was established to allow individual investors access to a family office style of investing in US-based operating businesses via well-credentialled, US-focused, private investment funds. Family offices are typically established and managed by ultra-high net wealth families. They are often able to access private investment opportunities and to source creative investment structures that are beyond the reach of most investors. To provide Australian investors with the opportunity to gain exposure to this form of investing, Dixon Advisory, a member of the Evans Dixon Group entered into a partnership with Cordish Private Ventures, LLC (Cordish Private Ventures), the private investment funds arm of The Cordish Companies, a Baltimore, Maryland, US-based, high net worth, multigenerational family business with extensive experience and success in investing in US private investment funds. The funds in the Series invest alongside and on similar terms as Cordish Private Ventures in US-based, small-to-mid sized, operating businesses through well-credentialled, US-focused, private investment funds. The Cordish family, through Cordish Private Ventures, invested US$10 million, US$12 million, and US$15 million alongside and on similar terms as Fund I, Fund II, and Fund III respectively. For the current raising, Cordish Private Ventures has committed to invest US$15 million alongside the Fund, demonstrating their commitment to, and belief in, the investment strategy. Walsh & Company, the Responsible Entity and a member of the Evans Dixon Group, believes that private investments have the potential to offer superior long-term returns relative to public market asset classes such as listed equities. Further, among the range of private investment vehicles, smaller and more nimble private investment funds, the focus of the Series, outperform their larger counterparts, on average. However, it should be noted that private investments are considered a higher risk asset class than traditional equities, with an increased potential for both loss of capital and operational and financial variability. See Section 6 for details. The investments of the Fund will be undertaken by an Investment Manager, Dixon Asset Management USA, Inc., taking into account the expertise of an Advisory Board. These investments will primarily comprise investments in US-based, smallto-mid market, private investment funds managed by third party managers. The Fund will also seek to invest directly, or as a co-investor with various limited partnerships, in private investments. The Fund s investments will be made through a limited partnership to be known as the U.S. Select Private Opportunities Fund IV, LP (LP), which has been established in the Cayman Islands. CORDISH DIXON PRIVATE EQUITY FUND IV PRODUCT DISCLOSURE STATEMENT 9

10 Under this offer, up to 62.5 million units will be offered at a price per unit of $1.60 to raise $100 million, with the ability to raise an additional $100 million through oversubscriptions. We ask that you read this PDS carefully before making your investment decision. This document contains important information in relation to the Fund. Like all investments, an investment in the Fund carries risk. These risks are summarised in Section 1.2 and set out in detail in Section 6. We commend the Offer to you and look forward to welcoming you as an investor in the Cordish Dixon Private Equity Fund IV. Yours faithfully Alex MacLachlan Chairman of the Responsible Entity 10 CORDISH DIXON PRIVATE EQUITY FUND IV PRODUCT DISCLOSURE STATEMENT

11 Investment overview and key dates Key dates Date of PDS 13 March 2018 Offer Opening Date 13 March 2018 Offer Closing Date* 27 March 2018 Issue Date* 6 April 2018 *The above dates are indicative only and may vary, subject to the requirements of the Corporations Act. The Responsible Entity may vary the dates and times of the Offer (including closing the Offer early) without notice. About the Offer KEY OFFER DETAILS SUMMARY MORE INFORMATION Issuer Offer This PDS and the Units are issued by Walsh & Company, the Responsible Entity. The Offer comprises an offer of up to 62.5 million Units at a price per Unit of $1.60 to raise $100 million, with the ability to raise an additional $100 million through oversubscriptions. The Fund has been structured with Units being paid in instalments. The first instalment of $0.32 per Unit (First Instalment) is payable upon Application. The Responsible Entity anticipates that each subsequent instalment will be approximately $0.32 per unit (equivalent to 20% of the Application Price). The purpose of the partly paid structure is to better align the timing of calls with the capital call process for the LP which is typical to private equity investments, so that the Fund s capital is deployed in a timely way and to better manage foreign exchange risk. Section 4.1 Section 5 Application Price $1.60 per Unit. Section 5.1 Minimum Subscription Minimum Application per Investor A minimum subscription of $50 million (31.25 million Units) must be raised by the Offer Closing Date. If the Offer is unsuccessful, all Application Monies will be refunded, without interest. The minimum Application amount per Investor is $2, (1,250 Units). Section 16.1 Purpose of the Offer To invest in a portfolio of US small-to-mid sized private investment funds, as well as potential direct investments, consistent with the investment strategy of the Fund. Sections 4.2 and 4.3 Pro Forma NAV $0.27 per Unit. Section 8.1 Applicants The Offer is open to Applicants with a permanent address in Australia. Section 5.1 CORDISH DIXON PRIVATE EQUITY FUND IV PRODUCT DISCLOSURE STATEMENT 11

12 KEY OFFER DETAILS SUMMARY MORE INFORMATION Superannuation funds Superannuation funds may invest in the Fund subject to the investment mandate of the particular fund and the trustee s general powers and duties. Underwriting The Offer is not underwritten. Section 16.2 Fees and Costs The Responsible Entity charges Structuring and Handling Fees for the Offer and ongoing fees to manage the Fund. There are also fees and other indirect costs charged by underlying funds. For the purposes of the Structuring Fee and the Handling Fee, the gross proceeds of the offer is based on both called and uncalled amounts per Unit, and the whole of the Structuring Fee and Handling Fee will be deducted from the First Instalment only. As such, the proportionate effect of the upfront cost will diminish over time, assuming the investment is held over the long term as is recommended for this Fund. Section 7 About the Fund KEY FUND FEATURES SUMMARY MORE INFORMATION Fund Type and Responsible Entity Fund structure Term of the Fund Investment Manager The Fund is an unlisted unit trust and has been registered as a managed investment scheme under the Corporations Act. Walsh & Company is the Responsible Entity of the Fund. The Fund will invest in a limited partnership, U.S. Select Private Opportunities Fund IV, LP (LP) that has been established in the Cayman Islands. The Fund, through co-investing with various limited partnerships, will acquire ownership in underlying private investments. All private investments held by the Fund are held indirectly through the LP. Accordingly, references to the Fund s investments in the PDS should be interpreted as investments made through the LP. The general partner of the LP, with responsibility for selecting and managing investments of the LP (including investments to be made by the Fund), is U.S. Select Private Opportunities Fund IV GP, LLC (GP). The Fund does not have a fixed investment term and is designed for the long-term investor. The Responsible Entity intends that the Fund will hold investments indirectly through the LP for up to 10 years and to make distributions as the investments are realised. There will be no right to redeem Units unless the Responsible Entity chooses to make a pro rata withdrawal offer. When the Units are fully paid, the Responsible Entity may seek to publicly list the Fund in order to provide liquidity. Investors are cautioned that an investment horizon of less than 10 years in the Fund may not provide sufficient opportunity for an increase in the value of underlying investments of the Fund. In limited circumstances, the Fund may be required to exit the LP early. For further information see Sections 12.1 and The GP has engaged Dixon Asset Management USA, Inc. (Investment Manager) to provide investment management services. The Investment Manager will have discretion to undertake investments on behalf of the GP and in turn for the LP. Sections 4.1, 11.1 and 11.2 Section 4.1 Section 4.5 Sections 4.1 and CORDISH DIXON PRIVATE EQUITY FUND IV PRODUCT DISCLOSURE STATEMENT

13 KEY FUND FEATURES SUMMARY MORE INFORMATION Investment objective Investment strategy Investment process Distributions Fund borrowings (gearing) To provide Unitholders with: a) exposure to a portfolio of investments in small-to-mid sized private investment funds predominantly focused in the US; and b) capital growth over a five to 10-year investment horizon. To target US small-to-mid sized private investment funds, seeking to replicate Cordish Private Ventures investment strategy of focusing on this attractive investment niche. All decisions regarding investment and divestment by the LP will be made by the Investment Manager subject to investment objectives, policies and restrictions adopted by the GP from time to time. The GP reserves the right to replace the Investment Manager at its sole discretion. The terms of the Investment Advisory Agreement require the Investment Manager to exercise its discretion to make investments consistent with the investment strategy of the Fund outlined in this PDS. Distributions are expected to be primarily funded from the realisation of underlying investments, and so should not be expected for the first few years. Any earnings-derived Fund distributions are likely to occur at irregular intervals and be of varying amounts. The Responsible Entity does not intend for the Fund to directly undertake borrowings. The LP may take on borrowings, as determined to be appropriate by the GP in its sole discretion, in order to acquire private investments. The GP may cause the LP to borrow not more than 15% of the LP s aggregate capital commitments. Section 4.2 Section 4.3 Section 4.6 Section 13.8 Section 13.4 CORDISH DIXON PRIVATE EQUITY FUND IV PRODUCT DISCLOSURE STATEMENT 13

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15 1. Key benefits and risks An investment in the Fund has a number of investment benefits and risks. Key investment benefits and risks are summarised in each of the tables below. 1.1 Key investment benefits KEY BENEFITS Access to family office style of investing alongside the highly successful Cordish Family Superior long-term returns available in small-to-mid sized private investments Diversification benefits High quality and experienced management team Convenient investment platform The Fund provides an opportunity to invest alongside the Cordish Family Office, which has significant experience and expertise investing in private markets. Typically, family offices have access to many private ventures and investment opportunities that are beyond the reach of most individual investors. Historically, US private equity has consistently outperformed US public equity over the long term. Furthermore, within private equity, small-cap private equity has generally generated superior performance to its larger counterparts over the long term. Over the past 10, 15, and 20-year periods, as at 30 June 2017, US small cap private equity funds have, on average, generated net returns of 12% to 15% per annum (net of fees and expenses) and outperformed US public equities by 5% to 7% per annum. Historical performance is not a reliable indicator of future performance. The Responsible Entity believes the Fund offers investors the opportunity to diversify their investment portfolio beyond real estate, public equities and fixed income while increasing their return potential. Private investment returns have historically demonstrated low correlation with public equities and fixed income and have on average tended to outperform listed equities. The Responsible Entity believes that manager selection is critical to success in investing in private equity. The Investment Manager has demonstrated strong expertise in selecting top performing managers within small-to-mid sized private investment funds. Performance information about the other funds in the Series is available on our website at Private investment funds are typically illiquid and have minimum investment requirements ranging from $1 million to $5 million, and often higher, putting the best performing private investment funds out of reach of most investors. The Fund provides an opportunity to invest in private investment opportunities. The partly paid structure of the Units is expected to align better with the capital call structure of private investments where committed capital is drawn down and invested over time as investments are identified. The Responsible Entity will make further calls on these partly paid units over an expected period of three to five years but reserves the right to vary the timing and amounts of further calls. The Responsible Entity may also consider the impacts of foreign exchange movements when making the decision to call additional capital. MORE INFORMATION Section 2 Sections 3.4, and 13.8 Section 3.4 Sections 2 and 11 Section 3.1 CORDISH DIXON PRIVATE EQUITY FUND IV PRODUCT DISCLOSURE STATEMENT 15

16 1.2 Key investment risks As with most investments, the future performance of the Fund can be influenced by a number of risks and factors that are outside the control of the Responsible Entity. A more detailed list of various risks are discussed in Section 6 and include: KEY RISK Investment performance Private investments risk Unlisted underlying investments risk Partly paid Units Investment exit risk Foreign exchange risk Investment horizon risk The Fund s performance depends on the underlying investment managers. The underlying investment managers may be unable to secure appropriate investments or realise existing investments. Private investments should be considered a higher risk asset class than traditional equities. This approach may increase the potential for loss of capital and may result in greater operational and financial variability. The underlying investments of private investment funds are typically unlisted investments. As a result, there may be no open market to establish an independent value for certain investments and no assurance that a determination of fair value will be obtainable in the market or that there will be a market for the sale of the unlisted investment. Units under the Offer will be issued on a partly paid basis. In the event that Unitholders fail to meet their obligations with respect to payment of the capital calls as and when due, Unitholders Units may be forfeited. The Responsible Entity may sell the forfeited Units as fully paid units or partly paid Units. The Unitholder may be liable to pay interest costs and expenses incurred by the Responsible Entity as a result of its default. Any surplus amounts from the sale of these Units will be returned to the Unitholder. If the costs are more than the sale price of the Units or the proceeds are less than what is owing, Unitholders will be liable for the balance, up to the total amount committed as the Application Price of the Units. The partly paid structure also means that until the Units are fully paid, they carry a potential liability in the amount of the unpaid and uncalled amounts. Further, non-payment of calls by Unitholders may mean that the Fund cannot meet its obligations to the LP. This may mean that the Fund suffers sanctions as a defaulting partner in the limited partnership, which may include a penalty of 25% of the capital contributed, charging of interest, loss of income, and forced sale. Investments in private investment funds are not frequently traded, and the LP may not be able to withdraw from or otherwise realise its investment in the underlying funds. The Fund s investments will be primarily in US small-to-mid sized private investment funds with assets and liabilities being denominated in US dollars. The value of the Units may be affected by increases and decreases in the Australian Dollar/US Dollar exchange rate. This will affect the value, in Australian dollars, of any income or capital distributed by the Fund. The Fund s current policy is not to hedge against exchange rate fluctuations. Investing in private investments requires a long-term commitment to the asset class, typically five to 10 years, and this will mean that realisation of value, through capital growth, may be similarly timed. The ability for the Fund to exit the LP is extremely limited. The Fund, GP, and the Investment Manager can exercise no control over the decisions of the underlying fund managers. Accordingly, the Fund may not be able to readily realise its investment in underlying funds. MORE INFORMATION Section 6.1(A) Section 6.1(B) Section 6.1(C) Sections 6.1(D) and 6.1(G) Section 6.1(E) Section 6.1(F) Section 6.1(G) 16 CORDISH DIXON PRIVATE EQUITY FUND IV PRODUCT DISCLOSURE STATEMENT

17 KEY RISK Cordish s ability to assist in securing investments; and key personnel risk Indirect investment; and alignment of interests Taxation risk Distributions risk Potential for increased costs Capital deployment Unit liquidity risk While it is anticipated that the investment by Cordish Private Ventures in the LP and the involvement of its affiliates and staff will assist the Investment Manager in securing access to private investment funds for investment, there can be no certainty that this will eventuate. There is a risk of departure of key staff who have particular expertise in funds and private investments, whether they are the staff of the Responsible Entity, the GP, Cordish Private Ventures, the Investment Manager or the underlying fund managers. Decisions as to selection of the ultimate investments to which the Fund will be exposed are not controlled by the Responsible Entity. Rather, the GP and the Investment Manager select the underlying managers that choose the investments. The Responsible Entity does not control the GP, however one of its related bodies corporate (as that term is defined in the Corporations Act) has a significant interest (42.5%) in the GP. There is no guarantee that this interest will be maintained. In any event, the GP owes fiduciary duties to all limited partners of the LP (including but not limited to, the Responsible Entity) and so it may make decisions which do not align with the preferences of the Responsible Entity. Changes to tax laws or unfavourable interpretation of existing laws may result in taxation consequences that are adverse to the value of the Fund. Distributions are expected to be primarily funded from the realisation of underlying investments, and so should not be expected for the first few years. Any Fund distributions are likely to occur at irregular intervals and be of varying amounts. The Investment Manager will invest on behalf of the LP in private investment funds as delegate of the GP. The underlying fund managers are also entitled to receive fees associated with performance of their management function. The multi-manager structure may result in the Fund paying a higher level of fees than if the Fund could invest directly in the assets held by the underlying funds, as investment manager fees and expenses are payable in respect of the LP and the underlying funds. However, the structure provides access to specialist investment expertise that may otherwise be unavailable to the Fund and its investors. Investment returns may be affected by the time it takes the LP and/or the underlying funds to identify attractive investments and deploy capital. Once the Units are fully paid up, the Responsible Entity may apply for the Fund to be listed, or if it remains unlisted the Fund may return capital to investors by way of capital distributions as investments are realised. However, neither outcome can be guaranteed. Unitholders may have limited or no opportunity to realise their investment in the Fund as there is no fixed term for the Fund, there will not be a right to redemption of Units unless the Responsible Entity chooses to make a pro rata withdrawal offer, and the Fund will be unlisted. While there will not be a ready market for selling Units, the Responsible Entity has the discretion to permit transfers. MORE INFORMATION Section 6.1(H) and Section 6.2(B) Sections 6.1(I) and 6.2(D) Section 6.1(J) Sections 3.3(f) and 6.1(K) Section 6.1(M) Section 6.1(L) Sections 5.4 and 6.3(A) CORDISH DIXON PRIVATE EQUITY FUND IV PRODUCT DISCLOSURE STATEMENT 17

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19 2. Overview of the Cordish Companies and Cordish Private Ventures 2.1 Introduction The Cordish Companies is a Baltimore, Maryland US-based fourth generation family business that has grown into a conglomerate of businesses since it was founded in The group s core business is a large and well-respected real estate development business that is widely recognised as a leading developer of large-scale urban revitalisation projects and entertainment districts. Many of the group s developments involve public-private partnerships and are of unique significance to the cities in which they are located. Other divisions of The Cordish Companies include a highly successful casino and resort development company, an operating division that owns and operates leading entertainment venues throughout the US, a media division, and a private investment division. This company owns and manages over 60 million square feet of commercial, hotel, and residential development. Cordish Private Ventures is part of the non-real estate investment arm of The Cordish Companies. Cordish Private Ventures has been investing in private equity funds and directly in operating companies since 1998 and has demonstrated their ability to source, identify, and gain access to top private investments in the US, a market that is difficult to access for most investors. In particular, it has significant experience successfully investing the Cordish family s capital in small-to-mid sized private investment opportunities. Cordish Private Ventures has focused on seeking superior investment opportunities in emerging growth areas, with a long-term investment horizon. Cordish Private Ventures has sought to invest with private investment fund managers that have not only delivered outstanding financial returns, but have also exhibited high levels of business integrity, and with whom it can develop lasting relationships. The Fund presents an opportunity to invest alongside Cordish Private Ventures. Access to the experience and networks of Cordish Private Ventures is of great benefit to the Fund given the importance of manager selection in the US private equity market. With Cordish Private Ventures investment in the LP and Jonathan Cordish s role on the Advisory Board of the Investment Manager, the Fund expects to leverage this experience to access top performing private fund managers. Additionally, Jonathan Sinex, a Managing Director of Cordish Private Ventures, has been seconded to the Investment Manager and its related entities on a full-time basis and focuses solely on private equity investments for the Investment Manager. Through Cordish Private Ventures, the experience and relationships developed across Fund I, Fund II, and Fund III, and through executives of the Responsible Entity and the Advisory Board, the Investment Manager believes it has accrued the track record, in-house experience, due diligence capabilities and credibility to source, analyse, invest in, and monitor these private investment funds. It is anticipated that a significant portion of the underlying investments the Fund will make, through the LP, are targeted to be with managers with whom Cordish Private Ventures has previously successfully invested with or with whom the Investment Manager has an established relationship and already engaged in active due diligence. It should be noted that performance of Cordish Private Ventures is not necessarily an indicator of the future performance of the Fund. CORDISH DIXON PRIVATE EQUITY FUND IV PRODUCT DISCLOSURE STATEMENT 19

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21 3. Sector overview 3.1 Family offices Family offices are private investment companies that are typically established to invest and manage the wealth and financial portfolios of individual ultra-wealthy families. Given the complexity of the investment activities and the necessary calibre of the investment teams, the cost of setting up such an office tends to be in excess of $1 million per annum, making this investment approach prohibitively expensive for most families. The investment objective of a family office is to create attractive long-term, risk-adjusted returns and to generate consistent income while preserving generational wealth and protecting capital. In order to achieve this objective, families tend to focus on broad diversification beyond public equities and fixed income to include private investments (such as private equity, venture capital and hedge funds), real estate, and commodities. Specifically, there is a bias toward private investments that are difficult to access and are illiquid. Through these investments it is possible to achieve higher risk-adjusted returns as well as diversification due to the low correlation of private investments returns and other asset classes. Family offices, through their professional investment teams and family members, often have unique access to compelling private ventures and investment opportunities that are beyond the reach of even the most established and respected institutional asset managers and funds. 3.2 Private investments Private investments are primarily in unlisted companies at various stages of their development Types of private investments Depending on the stage of the business and its individual needs, the different types of private investments can be broken down as follows: (i) Venture capital Venture capital involves investment in start-up and early stage companies, often those engaged in developing cutting-edge technologies and products but without a proven history of generating revenues and profits. Venture capital investments are generally in the form of equity into a business without security and represent a higher risk category of private investments but also offer higher potential returns. (ii) Expansion capital Expansion capital is used to grow and expand an established company that is capital constrained but has good growth or profit improvement prospects. These companies are usually at or near profitability and have some history of positive cash flow. (iii) Management Buy-Outs (MBO) MBOs usually involve purchasing an existing mature business, usually alongside management. These businesses typically have a strong history of profits and positive cash flows. Other types of private investments include: Distressed/turnaround: investments in a business with liquidity or solvency problems, often conditional on a business implementing a restructuring program. Mezzanine financing: unsecured debt financing provided to companies that are in growth phase but may not have access to equity finance. All of these private investment types share an opportunistic character, seeking to exploit inefficiencies in the capital markets. CORDISH DIXON PRIVATE EQUITY FUND IV PRODUCT DISCLOSURE STATEMENT 21

22 3.3 Key characteristics of private investments Private investments may be made either directly into individual private companies or through pooled investment vehicles (private investment funds) managed by professional investment teams. Key characteristics of the type of private investments to be targeted for the Fund include the following: (a) Expertise Private investment fund teams typically have expertise across sourcing, identifying and structuring investments and may also bring operating skills such as management, finance, marketing, strategic direction, and M&A in addition to valuable business networks. (b) Control Many private investments involve taking controlling stakes in companies and, critically, include an active operational role in setting policy and strategy in partnership with management. Board representations and management agreements allow private investment fund managers to be directly involved in the decision-making process of their underlying investment companies as they seek to protect and grow their investment. (c) Alignment of interest Typically, when a private investment fund invests in a company, the company s management team are also investors in or own equity in the company. This dynamic incentivises the operating management teams and ensures alignment of interest with outside investors. To further align interest, the Fund seeks to partner with private investment funds where the investment team have invested their own personal capital in the fund alongside outside investors. (d) Performance Cambridge Associates research shows that US buyout fund returns consistently outperform the S&P 500 across five, 10, 15 and 20-year investment horizons 1. The Responsible Entity believes that the superior returns may partially be driven by private equity s focus on expertise, control and alignment of interest, allowing greater control of investments than traditional passive investment in listed shares. (e) Time horizon of private investments Investing in private investment funds usually involves making a commitment to invest a specified amount of capital (Committed Capital). A small percentage of the Committed Capital is typically required at the start. As the fund makes investments, the manager will then call or draw down capital as needed. It typically takes up to five years for an individual fund to fully invest its Committed Capital. Individual underlying investments are typically held for a duration of three to five years, but may be held for up to 10 years. Typically, distributions from private investment funds to their investors only commence three to five years into the fund. Capital is largely returned via distributions from the sale of individual investments and may also be generated from the recapitalisation of investments. Investors may also receive earnings-derived distributions. Given the long hold periods of investments, investing in private investments requires a longer term commitment, typically around 10 years. (f) Uncertain cash flows and illiquidity Unlike investment in public companies, private investments are generally illiquid and investors do not have access to their capital during the lifetime of the private investment fund, nor can they sell their shares on a liquid capital market. Private investment funds have a specified lifespan and are typically self-liquidating, meaning capital is returned to investors over that time frame. However, this longer time horizon allows businesses to undertake transformational changes during ownership (including through mergers, acquisitions, store roll-outs, restructuring, etc.) to significantly enhance cash flows and returns within a five to 10-year period. 1 Cambridge Associates. The author of this publication has not provided consent to the inclusion of references to this publication and material drawn from this publication in this PDS. 22 CORDISH DIXON PRIVATE EQUITY FUND IV PRODUCT DISCLOSURE STATEMENT

23 3.4 Small and mid-market private investments (a) Size and growth of US middle market The US middle market, defined as firms with annual revenue from US$10 million to $US1 billion, is one of the world s largest markets. Not only is the US middle market substantial, but it has also traditionally been the fastest growing US market segment. According to data from the US Census Bureau and the National Center for the Middle Market, employment in the US middle market has grown noticeably faster than small and large US business segments over the 1977 to 2017 period. The same trend can be observed when comparing revenue growth between the middle market and S&P 500 companies. (b) Private equity can further enhance growth in middle market companies Whilst the US middle market has traditionally sustained a higher growth rate with respect to jobs growth and sales than other segments, there is a significant difference between the performance of firms that are backed by private fund investment and those that are not. From 1998 to 2015, the sales of all US private equity (PE) backed businesses grew by 84%. This compares to 25% growth by non-pe backed businesses. The outperformance of PE-backed businesses was primarily driven by the US middle market PE-backed businesses, which contributed to 78% of sales growth. (c) Sources of returns in middle market investing In the private investment space, exceptional returns can stem from investing in overlooked companies with superior growth prospects and investing in them at compelling valuations. The Investment Manager believes that the small and mid-market segment has a rich pool of target investment opportunities which tend to exhibit less competitive pricing than investments in larger companies. This creates opportunities for funds in the small and mid-market segment to acquire companies at reasonable or low valuations. Importantly, companies in the small and mid-market segment, by virtue of their size, are typically nimble and have significant growth opportunities. They have potential to benefit from private investment fund managers ability to drive operational changes that improve margins and drive revenue growth. (d) Performance of US middle market private equity funds US private investment funds range in size from tens of millions of dollars in total capital to tens of billions of dollars. The US small and mid-market private investment segment consists of funds that manage less than US$1 billion of capital and generally target investments in companies with total values of less than US$300 million. Funds focused on the small and mid-market segment have historically tended to outperform their larger peers (See Figure 1). Figure 1: Small Cap Buyout vs Large Cap Buyout Returns 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% 5 Years 10 Years 15 Years Investment Horizon (in years) US Buyout Small Cap Index US Buyout Large Cap Index S&P500 Index Source: Cambridge Associates, Buyout & Growth Equity Index and Selected Benchmark Statistics as at 30 June Cambridge Associates has not provided consent to the inclusion of data attributed to it in this PDS. CORDISH DIXON PRIVATE EQUITY FUND IV PRODUCT DISCLOSURE STATEMENT 23

24 The Investment Manager estimates that there are currently around 2,800 private investment funds raising capital globally, of which approximately only 139 are in the Fund s target geography, strategy and size. (e) Access to small and mid-market private investment funds Given the superior performance of small and mid-market private investment funds, these funds tend to experience high demand and have strict access limitations. Access to these funds is typically confined to smaller endowment funds and family offices. See Section 2 for further information. 24 CORDISH DIXON PRIVATE EQUITY FUND IV PRODUCT DISCLOSURE STATEMENT

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27 4. Fund structure & investment process 4.1 Fund Structure The Fund is registered with ASIC as a managed investment scheme. Unitholders hold Units in the Fund and receive the benefit of income and capital gains generated by the Fund s underlying investments. Figure 2 below sets out the ownership structure and management arrangements for the Fund. Figure 2: Fund Structure Diagram UNITHOLDERS Ownership Agreements Advisory RESPONSIBLE ENTITY CORDISH DIXON PRIVATE EQUITY FUND IV as Limited Partner General Partner Limited Partnership as Limited Partner CORDISH PRIVATE VENTURES ADDITIONAL LIMITED PARTNERS ADVISORY BOARD (CORDISH/ WALSH & CO.) INVESTMENT MANAGER CORDISH SERVICES UNDERLYING US FUNDS/INVESTMENTS Responsible Entity As Responsible Entity, Walsh & Company is responsible for the operation and administration of the Fund, including providing fund management and administrative services to the Fund, such as company secretarial, administrative and operational support services, and investor relations services. The Responsible Entity is a member of the Evans Dixon Group. Evans Dixon is a significant Australian investment and wealth management business providing services to more than 9,000 clients with funds under advice, execution, and administration of over $20 billion. General Partner U.S. Select Private Opportunities Fund IV GP, LLC (GP), as sole general partner of the LP, is predominantly responsible for investing and disposing of investments to be made by the LP and hiring external advisors, agents and employees as required. The GP owes fiduciary duties to all limited partners of the LP and as such, it must exercise its responsibilities in the best interests of the LP and promote the LP s purpose and business. The GP is owned by two affiliates of Cordish Private Ventures (57.5% in aggregate) and DGP Inc. (a member of the Evans Dixon Group) (42.5%). All material decisions regarding the operations of the GP require the approval of at least 85% of all members. See Section 12.4 of this PDS for further information. CORDISH DIXON PRIVATE EQUITY FUND IV PRODUCT DISCLOSURE STATEMENT 27

28 Limited partnership The Fund, Cordish Private Ventures, the GP, and any Additional Limited Partners, each make capital contributions towards the acquisition of investments by the LP, as directed by the GP. There is no guarantee as to the final size of the LP, however, the maximum value of commitments, including the investment from the Fund, is US$250 million. Additional parties may join the LP until 30 June 2019 (which may be extended for up to 90 days). Following the application of the proceeds of this Offer (assuming 62.5 million new Units are issued), the size of the LP is expected to be approximately US$77 million held in the following proportions 2 : the Fund (81%), Cordish Private Ventures (19%), and the GP (0.1%). See Section 12.1 for further information. Investment Manager The GP has engaged Dixon Asset Management USA, Inc. to act as Investment Manager for the LP. The Investment Manager is a member of the same group as the Responsible Entity. The Investment Manager has discretion to undertake and realise investments for the benefit of the LP as a delegate of the GP but must ensure the fiduciary duty owed by the GP to the LP is not breached. The GP can replace the Investment Manager in its sole discretion. All investments are subject to the Investment Manager s review and approval. The Investment Manager will have day-to-day portfolio oversight and will provide risk management. The Investment Manager is a member of the Evans Dixon Group. See Section 12.3 for further information. Advisory Board The Investment Manager has established an Advisory Board to provide it with expert advice, on a non-binding basis, in relation to portfolio and investment strategy, evaluation of investment opportunities and potential disposals, fund administration and other commercial matters for the LP and its limited partners, including the Fund. Cordish Services The GP has engaged Cordish Services to provide office space, utilities and administrative services to it and leverage the expertise of other key Cordish executives to assist in administration of the Fund. See Section 12.2 for further information. 4.2 Investment objectives The GP and Investment Manager seek to meet the Fund s aim to provide Unitholders with: a) exposure to a portfolio of investments in small-to-mid sized private investment funds and privately held companies predominantly focused in the US; and b) capital growth over a five to 10-year investment horizon. Cordish Private Ventures, as a limited partner in the LP, shares these objectives. There is no guarantee that these objectives will be achieved. The GP and Investment Manager have confirmed to the Responsible Entity that each will exercise its discretion to make investments consistent with the investment strategy of the Fund outlined in Section 4.3 which will employ an investment strategy that seeks to replicate Fund I, Fund II, Fund III, and Cordish Private Venture s investment strategy of focusing on small and mid-market private investment funds. 4.3 Investment strategy The Investment Manager will employ a multi-manager style of investment where capital contributed will be applied to acquire interests in investment vehicles managed by third party fund managers (Underlying Funds). By adopting this investment style, the Fund will hold indirect rather than direct investments. 2 Assuming a commitment of US$62 million in the LP from the proceeds of the Offer based on an assumed Australian Dollar/US Dollar exchange rate of CORDISH DIXON PRIVATE EQUITY FUND IV PRODUCT DISCLOSURE STATEMENT

29 The LP will invest in a discrete number of underlying private investment funds, a significant portion of which are targeted to be with investment managers with whom either Cordish Private Ventures has previously successfully invested or with whom the Investment Manager or its related entities have an established relationship and have already engaged in active due diligence. The GP will also invest in companies directly or via a private investment fund established by the GP or its related entity for that purpose. The Investment Manager believes that selecting private investment fund managers that have a sustainable strategy for adding value to their investments is critical to achieving a successful investment strategy. Within the universe of small-to-mid market private investment funds, the Investment Manager generally seeks to apply the investment strategy common to Fund I, Fund II, Fund III, and Cordish Private Ventures, which involves focus on funds that exhibit the following characteristics: a) consistent focus on niche investment opportunities: funds that have expertise in specific industries, geographic region(s) and/or investment strategies typically overlooked by larger funds. This consistency in the Fund s investment strategy allows for specialised expertise to grow over time, enhancing long-term performance; b) operating businesses with existing cash flows: core focus on assets with existing proven cash flow and potential for growth; c) appropriate size: funds that only seek to manage pools of capital sized appropriately for the opportunities on which they focus; d) judicious and limited use of leverage: funds that seek to generate returns through investments in high quality private businesses with limited debt rather than financial engineering through the use of leverage; and e) a hands-on approach: funds where all aspects of the fund s investment process is managed directly by senior fund executives who are intricately involved in the operations of the underlying businesses in which they invest. 4.4 Permitted investments The LP primarily makes investments by acquiring limited partnership interests in private investment funds although it is permitted to acquire a broad range of investments and has the ability to invest in companies directly. In addition, the LP may not: a) invest more than 25% of the aggregate capital commitment of the LP in any one private investment fund, other than an investment in a company either directly, or indirectly via a private investment fund established by the GP, or related entities, for the purpose of direct investment; the comparable aggregate limit for such direct investments is 33%; b) invest more than 15% of the aggregate capital commitment of the LP in any private investment fund whose primary investment objective is to invest in companies located or that conduct their principal business outside of the US; and c) invest in any private investment funds whose primary investment objective is to invest in companies located in, or that conduct their principal business, in emerging markets. While the Investment Manager is identifying suitable investments, or until capital calls are made by the Underlying Funds, the Responsible Entity may elect to hold cash, term deposits and cash equivalents and interests in cash management trusts. Apart from such direct investments, the Fund s investments will be made in its capacity as limited partner in the LP. The LP s specific investment methodologies may be altered, however, without prior approval by the limited partners, if the GP determines that such change is in the best interest of the LP and is consistent with the LP s objectives or purposes. The GP may modify the LP s specific investment methodologies without prior approval if the GP determines that the modification is in the LP s best interest and remains consistent with its objectives and purposes. 4.5 Investment term The Fund does not have a set investment term; however, because of the nature of the underlying investments in private investment funds, investors are cautioned that an investment in the Fund should be viewed as long-term. An investment horizon of less than 10 years in the Fund may not provide sufficient opportunity for an increase in the value of underlying investments of the Fund. In limited circumstances, the Fund may be required to exit the LP early. For further information see Sections 12.1 and CORDISH DIXON PRIVATE EQUITY FUND IV PRODUCT DISCLOSURE STATEMENT 29